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US Bancorp has been fined more than $600m by US regulators and charged with two criminal violations of the Bank Secrecy Act over “wilful” failings in its anti-money laundering programme over a period of more than five years.
The Minneapolis-based bank, America’s fifth-biggest by assets, operated its AML programme “on the cheap” by limiting staffing, said the Department of Justice, and imposing hard caps on the number of alerts generated by its transaction monitoring systems.
US Bancorp was well aware that these practices were improper, and resulted in the bank missing “substantial numbers” of suspicious transactions from 2009 to 2014, said the DoJ.
Notable flaws included waving through transactions connected to Scott Tucker, a former professional race car driver who ran a payday lending empire from a complex outside Kansas City, and was sentenced to more than 16 years in prison last October. A federal jury in Manhattan found that Tucker’s company illegally charged as much as 700 per cent interest on short-term loans to millions of people, using sham partnerships with Native American tribes to skirt state usury laws.
After reports of Tucker’s questionable business practices emerged in 2011, one AML investigator described him in reports to supervisors as “quite the slippery individual” who “really does hide behind a bunch of shell companies”. Nonetheless, US Bancorp’s main banking subsidiary failed to timely report suspicious banking activities for the next two years, according to the DoJ.
US Bancorp has entered into a two-year deferred prosecution agreement with the US Attorney’s Office in the Southern District of New York, which fined it $453m. Other penalties came from the Office of the Comptroller of the Currency ($75m), Financial Crimes Enforcement Network ($70m) and the Federal Reserve ($15m), for a total of $613m.
The DoJ cited a December 2009 memo from an AML officer to the head of compliance, which noted that AML staff were “stretched dangerously thin” and warned that “a regulator could very easily argue” that the bank should be testing more suspicious transactions to see if reports to FinCEN were necessary.
The bank then carried out tests on transactions that fell just outside its thresholds for alerts, to see if those thresholds should be adjusted so that more transactions were investigated. The answer was yes: in November 2011, AML staff concluded that during the previous year, between 30 per cent and 80 per cent of transactions were dubious by those tougher standards. But rather than increase staffing or change thresholds to flag more suspicious activity — as repeatedly requested by some employees within the AML division — the bank decided to scrap below-threshold testing altogether.
The DoJ said staff at the bank tried to hide these short-cuts from examiners at the OCC, the bank’s primary regulator. The AML officer described the bank’s AML programme to another senior manager as an effort to use “smoke and mirrors” to “pull the wool over the eyes” of the OCC.
“We regret and have accepted responsibility for the past deficiencies in our AML programme,” said Andy Cecere, US Bancorp’s chief executive, on Thursday. “Our culture of ethics and integrity demands that we do better.”
US Bancorp noted that it had installed new leaders in its AML team since 2014 and had instituted “a more transparent and frequent” reporting and escalation process to the board and executive management.
Assuming the bank’s continued compliance with the agreement to reform its AML programme, the DoJ agreed to defer prosecution for a period of two years, after which time it will seek to dismiss the charges.
Last month the $462bn-in-assets bank warned investors that a big settlement was on the way, saying it had taken a $608m charge in the fourth quarter for regulatory and legal matters. That was more than offset by a $910m benefit from the effects of tax reform.
Source: ft.com
